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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 57, No. 4 April 2001


The AAPS alert on Clinton's medical "privacy" regulations jammed the e-mail system at the Department of Health and Human Services, which closed down after 10,000 messages. The next day, HHS Secretary Tommy Thompson announced a new 30-day public comment period, stating that the Clinton White House had failed to post the "final" regulations to Congress as is required by the Congressional Review Act of 1996. Major regulations must be submitted to both houses of Congress 60 days before becoming effective.

It is vital that these radical regulations be stopped. Compliance would not just be burdensome and onerous, but virtually impossible, while placing physicians in an ethical dilemma: they can protect patient confidentiality or they can abide by federal law, but often not both.

The new Administration and Congress need to understand how profoundly the rules alter the patient-physician relationship. They would force a "major cultural as well as operational change," states attorney John Christiansen of Seattle. The shift from "confidentiality"-the obligation of a professional to protect information from disclosure-to "privacy"-certain rights of an individual to control disclosure-"represents a fundamental transfer of power over information from professionals to their customers and to...government agencies...."

The regulations are "proscriptive, burdensome, and represent the biggest change in the health care system that has occurred in my lifetime," stated David Korn, senior vice president for biomedical research at the American Association of Medical Colleges (BNA's Health Care Policy Report 1/15/01).

Physicians' notes were once terse reminders serving solely to communicate with those responsible for the patient's care. HCFA now requires them to be legible to barely literate clerks for the purpose of justifying the billing codes. The "privacy" regulations continue the process of transforming the medical record of a named patient into a computer-readable dossier on a numbered government dependent/subject/"human resource."

Private medical information could be integrated into the government data bases already being expanded and networked, for example, the New Hires Directory and state vaccine registries, which the CDC is trying to combine and federalize. In addition, nothing in the rule prohibits private parties from compiling large data bases, notes Sue Blevins of the Institute for Health Freedom (Health Freedom Watch Jan/Feb 2001). Data obtained without consent prior to Feb. 26, 2003, when compliance with the rule becomes mandatory, would not have to be removed, and records lose protection once disclosed to a third party that is not a "business associate" of a covered entity.

House Majority Leader Dick Armey (R-TX) writes in a letter to Secretary Thompson that the Clinton rules clear the way for the federal government to obtain certain private medical information "at any time and without notice."

As ACLU associate director Barry Steinhardt pointed out, "we need to be much more concerned with the authorized uses of data than their unauthorized uses. Right now, the law allows a lot of data usage by the government."

The change from confidentiality to privacy also involves a change from an absolute right to a balancing act. In the AMA's view, privacy "must yield to certain defined `public goods'" (AM News 2/26/01). The values that trump privacy, in the assessment of HHS, include "oversight of the health care system, including quality assurance activities," judicial and administrative proceedings, "limited" law enforcement activities, and public health research.

An Institutional Review Board (IRB) would assess whether "research is of sufficient importance so as to outweigh the intrusion on privacy." As Mr. Korn noted (BNA, op. cit.), such a determination is highly subjective. Moreover, the process of making the determination is itself an intrusion on privacy, stated attorney John Hoff, a policy editor for the Association of Academic Health Centers (AHC).

If patients expect the rules to protect them from marketing efforts, they are misinformed. Video rental records still have greater protections from disclosure than medical records, states consultant Robert Gellman. (AAPS staff observes that Mr. Gellman is the strongest voice for privacy protection on the National Committee on Vital and Health Statistics.) "The Clinton-Shalala marketing rule is the most anti-privacy proposal that I have seen in more than 20 years of work on health privacy policy." This rule, which was not in the draft published for comment, even permits marketing to minors or the use of protected health information about minors.

On the other hand, the rules may prohibit release of information about minors to their parents, as Blue Cross Blue Shield of Michigan indicated-if the minor may lawfully obtain a service (such as abortion) without parental consent.

Penalties are quite severe: up to $250,000 in fines and 10 years imprisonment for each violation. Yet requirements are so vague that it is "impossible for employers to know what they are supposed to do," according to the ERISA Industry Committee (BNA, op. cit.) A new monthly publication, HIPAA Compliance Alert, offers advice for $289/year, such as: "Hire a privacy officer who can effectively become an agent of change." He must be able to "digest massive regulations quickly." The American Hospital Association (AHA) estimates a $22.5 billion compliance cost over 5 years (HHS estimates $17.6 billion over 10 years). And it is simply unrealistic, AHA states, to expect hospitals to monitor the internal business practices of 50 to 750 business partners.

The draft rule drew 52,000 comments. This deserves many more (see p. 2 for directions). The rule is so flawed in concept and execution that a total new beginning is needed.

Opted Out and Happy

In September, 1997, I retired and moved to Florida. Since then, I have not received a single insurance or Medicare payment. After attending the 1998 AAPS meeting in North Carolina, I officially opted out of Medicare. My practice is very limited at present, as my main endeavor is running a small flight school. Nevertheless, my patients have accepted the program extremely well and agree with me entirely that we must get rid of third- party payers. I advocate cash only, checks limited, and no credit cards. I can do this because I trust God, and I trust the patients. If 85% of the patients can be trusted, why worry about the 15% who either can't pay or want to rip you off? I do not insist on payment at the time of service. I simply present them with a bill and tell them they can pay now or whenever they get the money. Patients will grow to love you if you put money second: "Seek ye first the kingdom of God, and all these things shall be added unto you."

I have not been sued in 37 years except once in small claims court, for turning a patient in to the Department of Motor Vehicles for loss of consciousness.

R. Douglas Collins, M.D., C.F.H., Bonifay, FL


What to Sacrifice?

From a message posted by George Fisher, M.D. ( groups.yahoo.com): In a third-party system, privacy cannot be preserved at a cost that is even minimally acceptable. "As HCFA explores all the corners of this labyrinth, [it finds itself] on an impossible mission. The third parties would have us believe that ... privacy just has to be sacrificed. What begins to dawn on me is that it is the third-party system that must be sacrificed...."

Dr. Fisher suggests a compromise in which we use very high deductibles and limit the very high compliance cost to expensive, institutionalized cases in which the cost can be justified. For the expenses under the deductible, "privacy remains in the cocoon of patient/doctor privilege."


The Re-Invention of Privacy

An alternative to the federal re-engineering of medicine and society-as in the Clinton-Shalala regulations on privacy -is offered by a burgeoning new industry described by Toby Lester in the March, 2001, issue of The Atlantic Monthly.

"Foundation-level" changes are challenging the command-and- control assumptions of the worldview prevailing in military, industrial, and government contexts, where "surveillance and control were taken for granted as good things."

The key to true consumer control is that "nothing resides in a central data base," explains Fred Davis, CEO of Lumeria.

This, of course, is the tendency opposite to the one fostered by the modern state, which attempts to create a population "with precisely those standardized characteristics that will be easiest to monitor, count, assess, and manage," as described by Yale political scientist James C. Scott.

Many take a "decidedly dark view" of such intrusive government, especially as manifested in the FBI's sophisticated global computer eavesdropping system called Carnivore, or in the "Know Your Customer" banking regulations, which might be launched globally though dropped 2 years ago in the U.S. because of public outcry (WorldNetDaily 3/7/01).

More invasive government arose because of the need for a "lie enforcer," as society shifted from bearer transactions (such as cash) to book-entry settlement. A reliable digital-cash protocol would eliminate the need to know or track the customer and greatly reduce transaction costs. A fraud-resistant form of "micropayments" under development by the Internet Bearer Underwriting Corporation (IBUC) could also resolve the conflict between Napster and the music industry. Customers could download music for a tiny charge, while industry could possibly reap even higher profits.

The crucial question about privacy, Lester writes, has always been "Whom should you trust?"

The old-fashioned chart written in code (the doctor's handwriting) might be as good as it gets for many medical services. Beyond that, patients might be better advised to trust technology rather than government or third-party payers.


Privacy Comments

The Final Rule is published in the Federal Register for 12/28/2000, pp. 82829-82462. It can be downloaded here . Send your comments by priority mail and/or certified mail; FAXed comments will be destroyed. Comments must be received by March 30 at: U.S. Department of Health and Human Services, Attention: Privacy I, Room 801, Hubert H. Humphrey Building, 200 Independence Ave SW, Washington, DC 20201. If you do not cite specific sections of the rule, your comments might not be considered. Sample comments can be downloaded from www.aapsonline.org or www.forhealthfreedom.org and will be sent to our First Alert Team (see Action item above).


State Issues

Last month, AAPS sent mailings to current and former members in three states: California doctors were alerted to the CMA's attack on a directory of physicians willing to see uninsured patients at an affordable price. Minnesota doctors were sent information about the provider tax. We let Oregon physicians know about a Senate bill to allow for a philosophical exemption to vaccines. See the new "State Issues" section at www.aapsonline.org for details. If there are items you would like to bring to the attention of other members in your State, contact us, preferably by e-mail to [email protected].


AAPS Calendar

June 1. Board of Directors meeting, Chicago
June 2. Spring Private Doctors' program, Chicago.
Oct. 24-27. 58th annual meeting, Cincinnati, OH.

Another Notch on HCFA's Gun

In 1999, United HealthCare, a Medicare contract agent in Virginia, ordered a physician to submit copies of 525 hospital records. He was told that failure to refund immediately the full amount demanded would trigger offsets from current claims plus 13.65% interest per month, so he took out a bank loan at a lower rate. At a carrier hearing in Manhattan, the hearing officer said she had a problem with only two of the claims, which the only expert witness (the doctor's) promptly clarified for her. A fully favorable decision was expected, but the original negative decision was affirmed in 90% of the cases. An appeal for a hearing before an Administrative Law Judge was filed. Five months later, the case had not been scheduled, much less transferred from Virginia back to Manhattan, the site most convenient for the appearing party, as the doctor requested. Medicare continued to withhold payment for valid claims, and the doctor's debt continued to mount. He told a colleague that he would fight the government's lawyers to the death. In January, he committed suicide, leaving a wife and three children. The League of Physicians and Surgeons stated: "While we will continue to fight fiercely on his behalf, it will be too little and too late when we prevail" (Now Hear This, Feb 2001).


Lawsuit Filed on Pediatric Rule

A Citizens' Petition having been denied, AAPS has filed suit [Civil Action No 1:00CV02898(HHK)] together with the Competitive Enterprise Institute (CEI) and Consumers Alert, asking for declaratory judgment pursuant to the Administrative Procedure Act to set aside "Regulations Requiring Manufacturers to Assess the Safety and Effectiveness of New Drugs and Biological Products in Pediatric Patients" (see AAPS News, Jan 2000). Plaintiffs assert that the Rule is contrary to law, exceeds the FDA's statutory authority, and is arbitrary and capricious.

It is recognized that drugs frequently act differently in children than in adults. However, manufacturers who bring drugs to market for use in adults frequently do not seek approval for use in children. Testing in children has many ethical and practical difficulties. Parents may be reluctant to consent; it is difficult to obtain blood samples; children experience much more anxiety than adults during the testing; and liability concerns are magnified.

One onerous provision of the Rule requires manufacturers to seek approval for their product in each of four separate pediatric subpopulations-even when they wish to market the drug only for adults. If this stands, there is nothing to prevent the FDA from creating further patient subgroups based on age, race, or gender, and withholding approval until all foreseeable uses are tested in these groups, causing further delays in the availability of new drugs and multiplying their cost.

Congress has chosen, in the 1997 FDA Modernization Act (FDAMA), to increase the availability of information concerning pediatric uses through a voluntary scheme that grants six months of market exclusivity in certain circumstances, showing its preference for incentives over coercion.

This provision has been severely criticized: "Profit margins have drug companies salivating for pediatric `crash-test dummies'" (NY Post 22/18/01). Critics also complain that companies prefer to test their big sellers rather than drugs most commonly used in children (Wall St J 5/5/01). Yet the same objections to unnecessary experimentation on children would apply if these tests are required by the FDA.

The government filed its "customary Motion to Dismiss seeking to avoid judicial scrutiny of their unauthorized ... regulations that are currently impeding access by physicians and patients to health-enhancing new drugs," wrote CEI attorney Sam Kazman in the Plaintiffs' response filed Feb. 23.


Supremes Uphold Delegation of Power

In the most closely watched administrative law case of the decade, Whitman [formerly Browner] v. American Trucking Association (see AAPS News, Nov 2000), the unanimous Supreme Court handed a major victory to the administrative state. The Court seems quite comfortable with allowing Congress to evade tough political choices by delegating them to an executive agency. It also upheld the precedent that the agency need do no cost-benefit analysis in arriving at its standards. On the other hand, the Court did reinforce a trend to be less deferential to a "reasonable interpretation by the administrator of any agency," by holding that the EPA could not expand its discretion so far as to read a clause out of the law. It sent one portion of the rules (the ozone standard) back to the EPA. In the view of Richard Epstein, interim dean of the University of Chicago Law School, the critics of regulation gained "another large chip to play in their never-ending battle with the forces of government" (Wall St J 3/1/01).


The OIG Is Watching

While Internet discussion groups (listservs) are useful ways to exchange information, the owner of one such list warns that "the requests for compliance advice you post are also likely being read by government officials who could use the information against you down the line." One suggestion: "Be vague in your questions."

Also, be wary about using the advice. If you rely on the advice without checking with an attorney, and you make an error, the OIG is less likely to acknowledge that it was an honest mistake (Medicare Compliance Alert 2/12/01).


HIPAA: Expect More Convictions

Prosecutors tend to shy away from new statutes, which may have a high rate of successful appeals. Each precedent gives them more courage. "In some ways, this [1996] law is like a new airplane," said U.S. attorney Sheehan. "After we've flown it a few times we see, yes, you can get this 20-ton beast off the ground, and people are getting used to it" (NY Times 1/23/01).

* * *

"You may find lawyers defining the range of treatments that you are allowed to use in specified circumstances. Lawyers may prescribe the criteria by which you are to choose among the allowable treatments. Lawyers may specify the priorities you must assign to different patients. Lawyers may require you to keep detailed records to establish at all times that you are in full compliance. Lawyers may punish you unless you can refute beyond a reasonable doubt their presumption that your failures result from not following all of their regulations and requirements. The lawyers have you outnumbered, but on the average they are no match for you in intelligence or dedication. Just don't let them ambush you while you are absorbed in caring for the sick."
    Commencement address by Chancellor W. Allen Wallis
University of Rochester School of Medicine and Dentistry quoted by Schwartz, NY Times, Feb 25, 1975

Members' Page

The Answer Is Still NO. [From the latest annual letter refusing to participate in Medicare]: Dear "Increase Provider" Team: Your records are correct. I am indeed a non-participating physician in the Medicare program.... I believe that it is immoral, unethical, and wrong to "participate" in fraudulent schemes. As you know, the Medicare program is based on a Ponzi scheme whereby older "investors" are paid with current "investor's" money: an involuntary and unconstitutional wealth transfer scheme. Pyramid schemes like this inevitably end in collapse and harm many people. As the demographics change in the next couple of decades, there simply won't be enough working people to overtax. Rationing of medical care, already rampant via below-cost payments and bureaucratic hassles, will become transparently severe as the retired population increases. The tax burden on workers, including those who earn only minimum wage, will become confiscatory, at which point the work ethic will be destroyed. Why work, only to have your earnings "transferred" to a failing government Ponzi scheme?

A physician could make more money selling illegal drugs, but that doesn't mean he should do it. Likewise, a participating physician can obtain a 5% higher Medicare allowance and not have to abide by the Limiting Charge laws.

Assigned benefits are an open invitation to fraud-which is deterred when the individual patient is directly responsible for payment. Assigned benefits also promote cost inflation as their is no incentive for patients to avoid overutilization.

Publicity in the Medicare Participating Physician/Supplier Directory (MEDPARD) is the equivalent of posting the names and pictures of criminals on the post office wall. I do not want my name in either place for participating in a fraud.

I will not ever voluntarily participate in the fraudulent and unconstitutional Medicare program, nor in any program that routinely harms patients via rationing and denial of care that competent physicians (as opposed to incompetent bureaucrats) deem to be medically necessary. My stand is consistent with the Non-Participation Policy of AAPS.
Lawrence R. Huntoon, M.D., Jamestown, NY


School-Based Outreach. Every public school child's enrollment package contained the enclosed form to be returned the next day. [The form asks for SS#, physician's name/clinic, and health insurance plan. There is a box to check: "I would like to learn more about health insurance for my child; you may release my name, address, and telephone number to an authorized insurance enrollment worker." Parents are also to sign consent: "To help school/medical providers in the coordination of my child's health and academic success, I give permission for San Diego schools, my child's doctor, and health insurance plan to exchange health information as needed." Examples include "medications and medical procedures at school."] Because the state is not having good success signing children up in their free program of health insurance- which I have seen advertised on Sunday prime- time television -this might help their campaign.
Linda Rutgard, La Jolla, CA


"It's Here to Stay." Back in the early 1990s in dear old Washington State, groups of physicians formed under the rubric of: "Join our IPA (or whatever) or become road kill!" So, of course lots of physicians avoided such violence-in the short run. Today, all the IPAs in Washington State are-what was that rallying cry?-road kill.
Steve Barchet, M.D., Issaquah, WA


It Just Gets Better. While a "fully insured" plan has maximum out-of-pocket of $2,000, the potential out-of-pocket for covered expenses with my Medical Savings Account is $0 this year because my $4,500 deductible is fully covered by the $9,000 in my account. I would have $12,000 in it by now, but I spent $3,000, mostly for expenses that our medical and dental plans considered noncovered, such as surgical removal of wisdom teeth. Even if my family spends the full deductible this year, there will still be $4,500 for noncovered medical expenses.
Art Jetter, Omaha, NE


Patient Satisfaction Rates. I was told by the Human Resources people at the Marriott Corporation that it has finally dawned on them that the 5-10% of people who were dissatisfied with their medical plans were the 5-10% who really used them because they were ill. Results of satisfaction surveys don't mean much unless the survey is done in the sicker part of the population. If one is healthy, just any old plan should be fine.

It is as if we evaluated airline quality by surveying people who drive by airports, but never get on a plane.
Robert Reid, M.D., Seattle, WA


Quality Data. As Greg Scandlen has said, "All the outcomes data, HEDIS report cards, provider profiles, etc., don't carry as much valid information as the simple price of a service in a free market." One of the things I could barely stomach as a consultant was the push to market HEDIS data for clients to use somehow to select a health plan. In an effort to take my mind off this absurdity, I devised a proprietary scheme to match PCPs and specialists to employees' astrological signs. A Taurus patient could see a Virgo specialist, but only during certain phases of the moon. Bad results were the fault of "greedy doctors" and "penny-pinching HMOs."
Gerry Smedinghoff, Wheaton, IL

Legislative Alert

The President's Address to the Nation

Riding high with a 61% approval rating, George Bush delivered his first address to the joint session of Congress on Feb. 27. Leading congressional Democrats seemed to be in a state of shock over the reception to Bush's speech, including friendly responses by many in the media and among some Democrats. Left- wing analysts have been saying all along that the general public is with the Democrats on the issues: tax policy, Social Security, and Medicare. Now the concern is that they may have miscalculated, and they are faced with a shrewd politician who not only communicates well-and simply and directly -but also shows a genuine Reaganesque flair for reaching out and possibly co-opting the "loyal opposition."

The President outlined a broad agenda and specified how he would allocate the federal funds over the next ten years. Every major projection by the Congressional Budget Office (CBO) and others indicates a budget surplus over this period. The Bush Administration is estimating a surplus of $5.6 trillion over ten years. Bush's plan calls for dedicating an estimated $2.6 trillion of the projected Social Security surplus to the Social Security system, and for establishing personal savings accounts for younger workers.

By slowing the overall growth rate of government spending to 4%, Bush would generate a budget surplus for 2002 of $231 billion. In dollar terms, this would be a $26 billion increase over 2001. Bush would also create a reserve fund of $1.4 trillion over the ten-year period for unforeseen contingencies and debt service. Finally, he would provide a tax-relief package of $1.6 trillion over a ten-year period, amounting to roughly one- fourth of the projected surplus.

Changing the Language of The Debate

In perhaps the key line of the speech, Bush set the terms of the national discussion on tax policy: "The choice is to let the American people spend their own money to meet their own needs. I hope you'll join me in standing firmly on the side of the people. You see, the growing surplus exists because taxes are too high, and government is charging more than it needs. The people of America have been overcharged, and, on their behalf, I'm here asking for a refund."

Bush is insisting that the vaunted surplus is, after all, the people's money. Odd thought. For years, leftists in Congress would talk about tax cuts in terms of whether or not "we"-an always vague use of the Royal Plural-could "afford" tax cuts. The tacit premise is that the great and glorious We the Government own the money, and the tax cut is akin to a government grant or subsidy. Tax cuts, then, are a form of largesse. A gift from the princes of the House and Senate.

That is the language of entrenched political power. Listen to Molly Ivins, in her March 1st column for the Fort Worth Star Telegram, who criticizes the President's tax cut as yet another indication of The Shrub's (her nickname for W) mental inability to reach beyond the lower planes of blue-jeaned vulgarity-shared by the natty and nippy conservative commentator Tucker Carlson of CNN, who thinks class warfare is "vulgar"-to the higher planes of superior understanding: "Quite, quite vulgar to point out that in a society already deeply scarred by the dramatically growing gap between the rich and everyone else, a tax cut that transfers yet more wealth into the hands of the rich while shifting more of the burden of taxation to everyone else is a truly bad idea." There you have it: a tax cut is an income transfer-kind of like welfare-to the rich. The logic is clear: The government is transferring it, because, after all, it is the government's money; or, in another version of the same notion, upper-income folks cannot have any property right in their own money.

Not to be outdone is Thomas Mann of the left-wing Brookings Institution, the haven of choice for the policy mavens of late Clinton Administration. For many reasons, Mann insists, Bush is flat out wrong about tax policy. In fact, we should be all happy that we are paying those taxes. Says Mann, "What's really needed is a new interest group made up of the willing taxpayers of America Most Americans of ordinary means willingly pay their taxes-and derive some satisfaction from doing so." If you are a person of ordinary means, you might wish to invite other such persons to join you in starting your own chapter of the "Willing Taxpayers of America." No doubt you will be flooded with millions of applications. Your mass movement will surpass anything in social history. Perhaps with a little help from George Soros and like-minded members of "We Got Ours Caucus," you can also do your part and bravely stand up for the Death Tax.

Re-igniting Economic Growth

On the tax cut front, President Bush's $1.6 trillion proposal got a big boost from analysts at the Heritage Foundation who found that it will "cost"-note the quotation marks-the Treasury far less than either the Bush Administration or its leftist critics contend. Because large federal tax cuts usually spark economic growth, Heritage analysts estimate the cost of the proposed tax package at $939 billion-more than $650 billion less than the White House estimate and more than $1 trillion below the $2.1 trillion figure claimed by the Center on Budget and Policy Priorities, a prominent left-wing Washington think tank. Critics use a "static" economic model, which assumes no change in taxpayer behavior. The Heritage Foundation uses a "dynamic" model, which accounts for predictable changes in consumer and business spending, as well as interest rates, income, and savings.

Under the Bush plan, the five current tax brackets would be collapsed into four and lowered. The child tax credit would be doubled to $1,000 per child, and the "marriage penalty" would be reduced. Taxpayers who do not itemize would be able to deduct charitable contributions. The plan would phase out the estate tax over eight years, and make permanent the business "research and experimentation" tax credit.

Heritage analysts also found that the plan would give the average family of four nearly $5,000 (after inflation) in additional income by 2011-and not only would save the entire Social Security surplus but leave about $2 trillion in excess revenue to be used for Social Security, Medicare, or other needs. Also, it would eliminate the federal debt by 2010.

Another positive effect of the Bush plan, say Heritage analysts, is that it would create more jobs-1.6 million more by 2011 than the CBO projects. This larger tax base also would generate $846 billion more in tax revenue. Economic growth fueled by the tax cuts would boost federal net interest payments by $226 billion and increase federal spending by $283 billion. Static models predicted the tax cuts enacted in 1963 under President Kennedy and in 1981 under President Reagan would reduce federal revenues, but, of course, both tax cuts produced substantial increases. (The Heritage paper, authored by William Beach and Mark Wilson, can be found online at www.heritage.org/library/cda/cda01-01.html.)

Bush's Big Health Policy Agenda

The big-ticket items-the tax cut, debt reduction, and Social Security reform took up a large part of the 49-minute speech. But the new President demonstrated a willingness to make changes in federal health policy a central part of his governing agenda, as laid out in the 2000 campaign.

The President stated: "My budget puts a priority on access to health care without telling Americans what doctor they have to see or what coverage they must choose. Many working Americans do not have health care coverage, so we will help them buy their own insurance with refundable tax credits." In outlining a tax-credit strategy, the President has broken dramatically with the pattern of incremental increases in government control over the financing and delivery of medical services that characterized the Clinton Administration, even with Republican control of Congress.

The President also made clear his direction in Medicare. He will reform the program based on the recommendations developed by Congressman Bill Thomas (R-CA) and Senators John Breaux (D-LA) and Bill Frist( R-TN). All of these were members of the national Bipartisan Commission on the Future of Medicare, whose majority recommendations the Clinton Administration torpedoed in March 1999. All four of the Clinton appointees voted against the majority recommendations, which needed only one additional vote to make a formal proposal for change to Congress and the White House.

Bush has committed himself to spending every Medicare dollar, whether from premium or payroll taxes, only on Medicare. In effect, this is an accounting sequestration, like Gore's fabled Lock Box. The dollars, of course, are not supposed to go anywhere else anyway.

Beyond that, Bush is proposing to allocate $153 billion in additional spending over a period of ten years to reform the financially troubled program. The Bush plan would include a prescription drug program integrated into a system of private health insurance, and changes in the way the Medicare system is governed. A system of competing private plans would be created, while the current Medicare program would be preserved for seniors who wanted to stay in it. There would be subsidies for basic coverage and drug coverage for low-income seniors, and "streamlined access" to the latest medical technologies. Bush insists that reform must include an accurate measurement of Medicare solvency, lack of which currently contributes to a widespread misunderstanding about the true character of the program's financial condition.

The Real State of Medicare's Finances

Former Vice President Al Gore said repeatedly that he would be responsible, and being responsible, he would put Medicare and Social Security surpluses into a Lock Box - and hide the key from irresponsible Republican tax cutters. Everybody's for a Lock Box, just like everybody's for clean air and water, decent food and clothing, and kindness and goodness and virtue and Mother's Day. The House of Representatives took a brave stand and, on Feb. 14, enacted HR 2, the "Social Security and Medicare Lock Box Act of 2001," by a vote of 407 to 2. It is a safe bet that President George W. Bush will surely sign The Lock Box into law, and everything with Medicare will be just peachy keen. Right?

Wrong. As the Senate Budget Committee staff recently noted, the Lock Box for Medicare would be fine if there were indeed a real Medicare surplus to protect. But the truth is that there really isn't a surplus in any normal meaning of the term. Instead, we are looking at ever larger demands on taxpayers to cover the rising costs of the program.

Likewise, the President's budget also paints a more somber picture. The problem is the way in which Medicare is understood for accounting purposes. There are two trust funds, Part A and Part B. Part A, the hospitalization trust fund (HI), is funded primarily from payroll taxes.

Is there a surplus in the Medicare Part A trust fund? Answer: yes, but. The But is the fact that the HI fund surplus is largely due to a budget gimmick that was enacted in the notorious Balanced Budget Act of 1997. Congress shifted the explosive costs of Medicare home health care services out of Part A and put them into Part B. As the President's budget team notes, "This shift had no economic consequence, nor did it change total Medicare spending. But it did have the intended effect of making the HI trust fund appear more solvent."

The Medicare Part B trust fund is not a trust fund in the same way as Part A; it contains Part B premiums, amounting to 25% of the costs. The other 75% comes from the general revenue fund. As the President's budget makes clear, the general fund transfer is estimated to total $86 billion in 2002, and $1.171 trillion over the period 2002-2011. This is a huge drain on the federal treasury.

Medicare spending is projected to soar, as everybody who is dimly conscious knows, outpacing the growth of the economy, general inflation, and the federal budget. The baby boomers start to hit the trust funds in 2011. The gap between funds that are dedicated to the program-the payroll taxes, the premiums paid by seniors, and the projected spending in the program-widens each year. That gap will have to be filled by large draw downs on the Treasury-in other words, more general revenues from taxpayers. The President's budget team projects that this gap will widen from roughly $51 billion in 2002 to $216 billion in 2020 to $368 billion in 2030.

There is time to reform Medicare. There is simply no more time to waste.

Robert Moffit is a prominent Washington health policy analyst and Director of Domestic Policy at the Heritage Foundation.